With Brexit looming, more is unknown than known with British economy, trade agreementsJanuary 28, 20203 min read
Although it has been in the works since June 2016, the transition phase of Great Britain’s decision to leave the European Union (EU) — more commonly known as “Brexit” — is set to take place on Jan. 31. It is a date that will most likely leave a ripple of economic uncertainty in the United Kingdom in its wake as the British prepare for total independence at the end of the year.
“Brexit has created so many new unknown variables. It can be profoundly disruptive to England as we know it today,” says Ralf “Don” Keysser, D.B.A., an associate professor in the MBA program at Saint Mary’s University of Minnesota.
Keysser predicts a negative short-term impact to the British economy, whereas the long-term perspective is still hard to predict until new free trade agreements with Europe and the rest of the world are established.
Keysser does not see a clear-cut benefit to the U.S. establishing a free trade agreement with the U.K., simply based on the lack of British imports in the American market, other than maintaining political closeness.
“It’s going to be a shock to the system. England will not be the England that it has been. There’s a lot of speculation, because we’ve never had a country pull out of the EU before, so it’s kind of an unknown. And it’s so highly politicized that it’s hard to get an objective analysis of what it’s going to look like.”
Keysser points to a Toyota plant in South Derbyshire that supplies most of its output to countries in the EU through a tariff-free treatment. With Brexit going into effect, the factory may have to vastly reduce its output. Still, the workers in that community overwhelmingly voted to leave the EU.
“This is a good example of how people will vote against their economic self-interests for ideological reasons,” Keysser says. “There’s a lot of ideology behind the Brexit vote: anti-immigrant, anti-Europe, pro-nationalist views that very much echoed President Trump’s appeal.”
There are a few reasonably good projections, Keysser says, to make about the impact on inflation, unemployment, and economic trends — and none of them look good for Britain. One just has to look at the British pound, which has steadily been losing value to the dollar and euro over the years. In addition, several banks decided to either move from London or expand into other markets within the EU as soon as the Brexit results were announced, which could cost the British capital its status as of the world’s premier financial centers.
“I see a gradual diminution of the financial business that’s been a mainstay of London,” Dr. Keysser says.
On top of that, there is a real fear of Scotland and Northern Ireland wanting to leave the U.K. in favor of establishing their own independence and returning to the EU. The last time Scotland voted to leave the U.K. in 2004 it only passed 55% to 45%.
“That could be the beginning of the end of the United Kingdom as we have known it,” Keysser says.
The news might not be entirely bad out of Brexit. For international tourists, especially those from the U.S may be able to take advantage of the dollar’s exchange rate with the declining pound.
Do you want to know more about the possible economic ramifications of Brexit? Are you a journalist covering this topic and interested in an interview? That's where we can help.
Ralf Keysser, D.B.A., has been an active investment banker and business finance consultant for 35 years. He also serves an associate professor for the MBA program at Saint Mary’s University of Minnesota. To book an interview with him, simply click on his icon above to access his contact information.